The Rt Rev Richard John Carew Chartres exuded an aura of benign ecclesiastical calm having performed the most dramatic reverse ferret in modern church history.

The Bishop of London was cloistered in his 17th century palace – confusingly called the Old Deanery – after overseeing a meeting of the St Paul's Cathedral chapter at which his colleagues had unanimously agreed to overturn virtually every single decision they had reached over the past two weeks.

"Reverse ferret" is, technically speaking, a term used in Fleet Street, just down the road, to describe the moment when an editor executes a startling editorial U-turn.

But it was the bishop who brought off a remarkable tactical volte face. Stepping into the shoes of the recently-departed dean of St Paul's, Graeme Knowles, Chartres decided to suspend legal action against the protesters who are camped out barely a hundred yards from his sitting room – and to disregard the legal and health and safety advice which had previously led to the closure of the cathedral.

"The symbolism of the closed door was the wrong symbol," said Chartres, who also announced an initiative, led by a former investment banker, with the aim of "reconnecting the financial with the ethical".

"St Paul's in the 20th century was a symbol of freedom. It was defiance, it was Nazi tyranny, it was the pall of smoke surrounding the Dome. The cathedral means a very great deal to huge numbers of people."

On the closure, he added: "I think it's easy to be wise after the event – hindsight is a marvellous thing – and I think that what the dean has done is given us a chance to actually start again. I think that's very honourable behaviour."

After chairing the chapter meeting which agreed to back off from evicting the protesters – a move soon followed by the co-owner of some of the land, the Corporation of London – Chartres led clerical colleagues down to meet the campaigners. "It was the first time they'd met. It was liberating for them … I think the relationship will grow."

Chartres described the protesters he met as "people with admirable passion as well as people in some distress." Their voices chimed in with "alarm bells ringing around the world about the connection between finance and ethics and human flourishing.

Would he agree the dean and chapter made a series of wrong decisions – that they muffed the chance to see the big picture from the thicket of health and safety and legal twigs? "They were wrong for the reasons they said and right from the point of view…" he tails off and recovers. "I mean, that sounds awfully feeble, doesn't it? But I can see how it happens. You had advice pouring in, you had immense tensions, you do things and you get yourself into a situation where you finally say 'we're not in the place we want to be.'"

"Graeme was dealing with an unprecedented situation. It came out of a clear blue sky. His resignation was a creative and honourable thing. He said to me 'the only way I can see we can make a fresh start is by my going.'"

Chartres said the new dialogue with the protesters was "only the beginning".

"There are some very basic things to discuss, like 'how are we going to manage 2,000 people coming into the cathedral this Christmas.'"

But Chartres said he also wanted to air issues around the ethics of finance, having announced plans for a new group, headed by a former top investment banker, Ken Costa, to explore the subject. The group would involve Giles Fraser, the St Paul's canon chancellor, who also stepped down last week, in his case over fears that evictions could turn violent. Chartres said he would also publish an earlier report by the St Paul's Institute, which had been delayed because of the protest.

He said: "The church doesn't and shouldn't claim ordination gives you a tremendously privileged insight into how to solve the eurozone problems."

When it is pointed out to him that the archbishop of Canterbury, Rowan Williams, has just written an article making very encouraging noises about the "Robin Hood" Tobin tax on financial transactions he barely misses a beat.

"Well, he's an intellectual of European standing and I'll certainly read what he says with great attention. He has studied the subject in some detail and, like any other citizen, it's a totally legitimate thing to do. But if I were to pronounce on the Tobin tax I think I would be … isn't the City phrase 'over-trading?'"

But he points out that, as a former Bishop of Stepney, he knows a thing or two about poverty and does come out with fairly robust criticism of the recent behaviour of bankers. "I think back to people I knew of a previous generation in the City of London who exercised enormous restraint. There is now an atmosphere of inordinate ambition to boost the bottom line and forget the consequences."

He deplores "the way in which banking became a merry-go-round of instruments which were not properly understood or properly priced – that's obviously a moral problem". "People look in a very straightforward way, which I share, at the banks which were bailed out. They bear a measure of responsibility for the state we're in yet they don't seem to have shared the pain."

He is full of praise for Fraser – "he did something quite remarkable" – but rules out the possibility of reinstating him at the cathedral. "I don't think he wants a way back to membership of the operative chapter, but he's very much on board. He's a very important voice which needs to be heard but the St Paul's chapter of his career has come to an end at his request. I don't think it's telling tales out of school. He wants to write."

Could he imagine inviting tents into the cathedral when the weather gets cold? "I think that's a very interesting point," he says. "People have said 'what about a tent inside St Paul's as a piece of symbolic communication?'" But what about allowing protesters to sleep in there, as a place of sanctuary? "Ha ha. Well, I'm still only helping the dean and chapter. I'm not assuming responsibility for health and safety policies."

His warm words about the protesters contrasted with a statement from the Corporation, saying that it had just "pressed the pause button" on the evictions. It had been expected to serve legal papers on the camp on Tuesday morning, giving activists 48 hours to pack up their tents or face court action. But the cathedral's U-turn left them in a near-impossible position.

Stuart Fraser, its policy head, said: "We're hoping to use a pause – probably of days not weeks – to work out a measured solution."

The activists, who make all decisions by consensus at mass meetings, have already voted to stay at the site until after Christmas. However, they say they are open to possibly reducing the size of the camp and are already discussing ways to limit their impact on the cathedral during upcoming peak periods such as Remembrance Sunday, Thanksgiving and Christmas.

Chartres chuckles when told of the front page of the Evening Standard which proclaims "Bishop v Bishop in War of St Paul's" – which supposedly pitches him against Williams.

"On the contrary, we get on very well and share a number of interests. His first piece of academic work was on Anthony Khrapovitsky, the first Metropolitan of St Petersburg. And there are very few people with whom he can talk about that!"